New rules for China’s war on terror?

East Asia Forum - 7 hours 56 min ago

Author: Kendrick Kuo, Johns Hopkins

After a very violent year, officials in China’s western province of Xinjiang announced in March 2014 that they were considering an anti-terror law for the region. The law would ostensibly fill the gaps in the national criminal law by addressing the unique challenges of terrorism. But do laws really matter in an authoritarian state and in a region as militarised as Xinjiang?

The 1997 Criminal Law was the first legal recognition — albeit rudimentary — of terrorist crimes, listing them among other crimes that endanger public security. After the 9/11 terrorist attacks against the United States, China amended the law to include punishment for financial supporters of terrorism and harsher punishment for acts of terror. Yet the legal definition of ‘terrorism’, ‘terrorist organisation’, and ‘terrorist crime’ remained obscure, thus allowing broader interpretations to include a variety of groups. As if highlighting this ambiguity, Xinjiang Party Chief Wang Lequan in December 2001 described staging riots and beating, smashing and looting as terrorist activities.

The Criminal Law is only one part of a complex network of overlapping security-related legislation that form China’s legal approach to national security, all of which have implications for China’s war on terror. The State Security Law, adopted in 1993, parallels the Criminal Law, but focuses on collusion with foreigners to organise and carry out espionage, separatist conspiracies and terrorist activities — it was invoked earlier this year to prevent Uyghur professor Ilham Tohti from accessing his lawyer. Legal ambiguity pervades the entire apparatus of national security laws, as there is no legislation tailored to addressing terrorism.

Since the Kunming attack in March 2014, the Chinese public has become more aware of the limits of the criminal law provisions to support anti-terror efforts. Beijing faces mounting pressure for legislation tailored to handle attacks. The complexity of terrorism issues ensures that a national anti-terror law will take years to achieve. The announcement that Xinjiang was going to draft a regional law came with the qualifier that this was only the first step in a multiyear process of getting legislation passed.

China still lacks national anti-terror legislation, but Beijing has taken steps to remove legal ambiguity. In 2011, the Standing Committee of the National People’s Congress passed the Decision on Issues Related to Strengthening Anti-Terrorism Work, which described terrorist activity as ‘activities that severely endanger society that have the goal of creating terror in society, endangering public security, or threatening state organs and international organisations’. The decision also defined terrorist organisations and terrorists and explained the procedure for listing them.

While human rights organisations may see legal ambiguity surrounding counterterrorism as a boon to a Chinese regime intent on maintaining stability at all costs, Beijing may actually view it as an obstacle to legitimacy and to effective counterterrorism, undermining Beijing’s long-term project of ‘legalisation’.

Rather than just defending the Communist Party’s claim to the rule of law, national security laws can be instrumental in winning support for an expanded scope of state authority. China adopted the 1996 Martial Law in response to criticism of the decision in 1989 to declare martial law. The legislation allows the government to declare martial law and suspend a number of legal rights to restore order. It would be put to the test if the situation in Xinjiang deteriorates.

After the spate of attacks earlier this year, including the Kunming and Urumqi station attacks, the Higher People’s Court of Xinjiang executed 13 people on terrorism charges. Others received delayed death penalties and lengthy prison terms. The aftermath of terror attacks in China, though not given much media attention in the United States, is an important part of Beijing’s strategy. The announcement of indictments and punishments are important for China’s push for political legitimacy through rule of law. Authorities in Xinjiang have also used sentencing rallies, where mass trials are conducted with thousands in the audience. In May 2014, 55 people were sentenced on charges of terrorism, separatism and murder. While this model of mass sentencing is undoubtedly a show of force and political theatre, there is also an element of demonstrating the law at work.

Political legitimacy is not the only reason for the passing and implementing of improved national security laws. Broad and ambiguous laws may allow for abuse under the guise of legality, but they also limit the effectiveness of security personnel. Since Chinese criminal law does not offer specific regulations on terrorism, terrorist acts are treated under the category of ordinary crime where criminal liability is based on the type of criminal action as opposed to terrorist intent. For example, threatening the government with violence is not considered a terrorist crime under the criminal law. Chinese legal analysts thus see the lack of clear and precise terrorism-specific legislation as detrimental to national security.

Specific legislation that grants special authority in counterterrorist activities allows security personnel to supersede restrictions imposed by ordinary criminal cases. After the July 2009 incident in Urumqi, the National People’s Congress passed the People’s Armed Police Law, giving the People’s Armed Police greater authority to detain and investigate in order to handle riots, rebellions, terrorist attacks and other serious crimes. A national anti-terror law would potentially define responsibilities of different law enforcement agencies and also procedures for activating emergency measures.

Decentralisation of authority has also been an obstacle for effective, coordinated counterterrorism. Domestically, this concern was reflected recently in Xinjiang party chief Zhang Chunxian’s announcement that ‘we will properly conduct our work in Xinjiang under the leadership of the National Security Commission’. The simultaneous push for rule of law and the elevation of Xi Jinping as a visionary and charismatic leader are reconciled in the more encompassing drive to recentralise authority. The rule of law is another instrument to ensure that decisions made in Beijing are executed properly.

In this way China’s war on terror is likely to be disciplined and so accrue legitimacy. It will also, importantly, be effective.

Kendrick Kuo is a China specialist pursuing graduate studies at the Johns Hopkins School of Advanced International Studies.

Categories: Forum

No good time for Xanana Gusmão to let go

East Asia Forum - Fri, 10/24/2014 - 16:00

Author: Damien Kingsbury, Deakin University

Timor-Leste’s prime minister, Xanana Gusmão, has deferred his decision to step down as his country’s leader until April 2015. He had announced earlier this year that he intended to leave office firstly in September, then in October. He has since said that he wishes to stay on to oversee negotiations with Australia over a resolution to the Timor Sea dispute.

Timor-Leste has disputed the 2002 creation of a Joint Petroleum Development Area in the Timor Sea, and the adjacent boundaries, from which both Australia and Timor-Leste derive profits from oil extraction. Timor-Leste has argued in the Permanent Court of Arbitration in The Hague that the treaty, which was agreed to by Timor-Leste under pressure, should be invalidated as a result of Australia spying on the Timor-Leste negotiating team.

The court was due to hand down a determination on the matter in September, but in August both parties agreed to work outside the judicial system to seek a negotiated outcome. In September, Gusmão said that he could not ‘run away’ from his leadership role while the negotiations were underway.

Gusmão had been considering stepping down as prime minister to make way for a younger generation of Timor-Leste leadership since 2013, a year after his coalition government was re-elected. There have been calls in Timor-Leste for the ‘Generation of ’75’ leaders to step aside to make way for a younger generation of political leaders. Timor-Leste’s political leadership continues to be dominated by actors who were either military resistance leaders during the Indonesian occupation or who, from 1975, helped lead the struggle from abroad.

Gusmão has recognised that the next generation of leaders is unlikely to emerge while he remains as prime minister, such has been his dominance over Timor-Leste’s political life since before the country achieved independence in 2002. But, at 67 years old and having spent 17 years as a guerrilla fighter and leader and then seven years in an Indonesian prison, Gusmão is less robust than he once was, in particular suffering chronic and sometimes debilitating back pain.

While Gusmão was concerned to ensure a positive outcome for the Timor Sea negotiations, as well as a royalties dispute with oil company ConocoPhilips, this is only part of his reason for wanting to stay on as prime minister. The real negotiations with Australia and the oil companies are largely handled by Resources Minister Alfredo Pires and his team, so Gusmão’s presence is more symbolic than actual in that regard.

Another part of Gusmão’s thinking is that it is not yet clear who would — or could — succeed him as the country’s leader. Gusmão’s very able right-hand man and Chief of Cabinet, Agio Pereira, has been widely tipped to succeed Gusmão. However, Pereira is himself a member of the Generation of ’75, having fled to Australia where he was a key contact for the resistance movement.

More importantly though is that, having lived outside the country for so long, Pereira does not have either an established geographic or language group support base and, despite his undoubted competence, does not have a high public profile beyond Dili.

There are others in Gusmão’s party (the National Congress for Timorese Reconstruction) who could also succeed him, and who are younger, including party secretary-general Dionísio Babo Soares. But there is also a view that, without Gusmão’s leadership, in a country in which charisma counts for more than policy, the party — and the coalition government — could break up over a disputed leadership.

On the other side of the political fence, the Generation of ’75 leaders of Timor-Leste’s second largest party, Fretilin, especially Mari Alkatiri, do not look like leaving any time soon. This is despite Alkatiri having taken his party to successive election defeats.

Although he worked closely with Fretilin following the 2012 elections, Gusmão would be deeply reluctant to see Alkatiri again take the prime ministership, if it were this time by default.

Finally, while Timor-Leste’s oil fund has now reached US$15 billion, the government has been spending at a rate that, depending on future fiscal prudence, will see it run out of money some time over the next 10 to 20 years. While Gusmão cannot hope to be around to oversee that process, he may wish to see put in place more sustainable economic policies. He may also want to more fully address some of his people’s continuing problems with widespread poverty, poor education and high unemployment.

With his undoubted love for Timor-Leste’s people and at least one eye on his legacy, no time will be, to him, a good time to finally let go.

Categories: Forum

Taiwan’s Ten Thousand Double-Edged Swords

East Asia Forum - Fri, 10/24/2014 - 04:00

Author: Che-Yu Ou, Waseda University

Procuring the Ten Thousand Swords missile system is a blunder for Taiwan; it aggravates the security dilemma between it and the PRC. For its own security, Taiwan should deter threats from the PRC by manufacturing weapons with exclusively defensive capabilities.

The Ten Thousand Swords missile, or the ‘Wan Chien’ missile, is an aircraft-launched standoff missile that creates a barrage to destroy enemy facilities such as air bases, runways and missile launching sites. Its accuracy is enhanced by radars and GPS, with a striking range of 300 kilometres. Taiwan’s Ministry of National Defense has installed the missile in 40 Indigenous Defence Fighter (IDF) aircrafts to date and intends to complete installation on all 127 IDF aircraft by the end of 2016.

Recent People’s Liberation Army (PLA) modernisation efforts are formidable. Taiwanese forces seem frail and vulnerable against the stronger China. In 2014, China will spend approximately US$132 billion on its defence budget; a 12.2 per cent increase from the previous year. In contrast, Taiwan merely spends around US$10 billion on its defence and is not always able to procure the arms it favours from the United States.

Taiwan insists that the new system makes an important contribution to its security. The Ten Thousand Swords missile capability is considered strategically important because it enables Taiwanese aircrafts to hit targets in mainland China from the Taiwan Strait. Taiwanese aircrafts will no longer have to risk flying deep into Chinese airspace to hit key facilities and infrastructure.

But this does not reflect the realities of China’s thinking. The PRC aims to change Taiwan’s perception of its own security so that the island will forego any aspirations to declare independence. This includes the deployment of at least 1,600 short-range missiles as an intimidation tactic. The Ten Thousand Swords missile system is likely to compel China to further accelerate its military modernisation efforts. In a contingency scenario Beijing may aim to coerce Taipei into capitulation either before US military support arrives or by preventing US troops from accessing the vicinity of Taiwan. Taiwan’s decision to deploy the Ten Thousand Swords aggravates the security dilemma and undermines the security Taipei is trying to bolster.

The security dilemma — the situation where actions by one state intended to heighten its security lead other states to respond with similar measures, producing a spiral of increased tensions — has been a longstanding feature of Cross-Strait relations. Taiwan’s previous military procurement and acquisition choices often created tensions with the PRC and destabilised regional security. In response to the increased number of PLA fighter jets and missiles deployed close to its territory, Taipei has vigorously strived to strengthen its security. In May 2000, the Chung Shan Institute of Science and Technology, a military-owned research organisation in Taiwan, launched a missile project aimed at disabling Chinese military units. With similar intent, the Ten Thousand Swords missile was developed to surpass the AGM-154 air-to-surface glide missile which the United States refused to offer Taipei. As such, Taipei believes that by acquiring the capability to shell key PLA facilities, it can bolster deterrence by denial.

Taiwan’s belief is ill-founded. The deployment of the Ten Thousand Swords missiles increases the chances of Taiwan being struck first. The missiles are capable of reaching farther into PRC territory than other missiles Taiwan currently possesses. But the extended radius, coupled with the offensive capability, will give China added incentive to strike first in the case of war. To ensure the mobility of PLA aircraft, China’s Second Artillery would be likely to initiate a strike to neutralise Taiwan’s air bases. China also has the capability to deploy additional missiles from other regions to the coast of Fujian and inflict a severe bombardment on Taiwan. As a result, China’s artillery forces have the capability to pre-empt any Taiwanese IDF missile strikes.

At the politico-strategic level, the missile empowers Taiwan’s de facto independence. Predictably, Beijing will perceive the acquisition of these missiles as a threat to its unification efforts. Although President Ma Ying-jeou alleviated tensions by reiterating the ‘three no’s’ — no independence, no unification, and no use of force — the procurement of these missiles, which can theoretically be used for offensives purposes, is likely to stoke Beijing’s scepticism towards Ma’s commitment to ease Cross-Strait tensions. As such Beijing may increase its efforts to prevent Taiwan acquiring further arms in the future.

To avoid cataclysm, Taiwan should focus its efforts of defensive weapons systems. Beijing will interpret Taipei’s procurement of offensive capabilities as a move towards secession from the mainland and this will increase the likelihood of war. An exclusively defensive approach to security will help to alleviate tensions, create an exit from the vicious circle of the security dilemma, and decrease the possibility of war in the Taiwan Strait.

Che-Yu Ou is a graduate student at Waseda University, Japan. He previously attained a BA in Economics from University of Victoria, Canada. 

Categories: Forum

Infrastructure spending is the medicine Thailand’s insecure economy really needs

East Asia Forum - Thu, 10/23/2014 - 16:00

Authors: Pisit Leeahtam, Chiang Mai University & Cynn Treesraptanagul, Chiang Mai

In May 2014, the Thai army, known as the National Council for Peace and Order (NCPO) staged a coup d’état to prevent civil war breaking out after months of political deadlock and administrative paralysis. Since then, the interim constitution has been enacted, the new cabinet has received royal endorsement, and the National Legislative Assembly and the National Reform Council have been established. The NCPO has asked to stay in power for one to two years to restore stability. While Thailand’s national reform has so far been on schedule on the political front, the Prayuth government now confronts another serious challenge as it faces pressure to revive Thailand’s struggling economy.

Before the coup, GDP growth contracted 0.6 per cent year-on-year for the first half of 2014, almost entering technical recession. Consumer confidence was at its lowest in April and the household debt-to-GDP ratio was as high as 82 per cent. The NCPO responded quickly after the coup, repaying rice farmers for their crops sold during the previous government and ordering speedy disbursement of compensation. Consumer confidence gradually picked up and reached a one year high in September thanks to the greater political clarity.

It’s not all good news, though. August imports plunged 14.2 per cent year-on-year. The decline was broad-based, led by fuel, machinery, automobile parts and consumer goods. This shows that investment is still lacklustre while domestic demand remains weak. The manufacturing production index and capacity utilisation have yet to pick up. Tourism remains sluggish due to the continued imposition of martial law. The export sector, which accounts for 74 per cent of GDP, continues to be a drag on the recovery of the Thai economy. August exports fell 7.4 per cent year-on-year. Demand from Europe and Japan, Thailand’s third and fourth major export destinations representing 9.81 per cent and 9.72 per cent of total exports respectively, remains weak.

By the end of 2014, Thailand will no longer be eligible to benefit from Generalised System of Preferences (GSP) privileges with the EU since it is now considered an upper-middle income country. As a result, Thai exports will lose competitiveness to countries that still receive GSP privileges such as India, Vietnam, Indonesia and the Philippines, or to countries without GSP privileges but with FTAs with the EU such as Malaysia, as well as to a more competitive China. Despite Thailand resuming negotiations on a FTA with the EU, the process won’t be completed until 2017 at the earliest, and ratification will only take place when Thailand has a newly elected government.

Timely government spending is vital. The country’s inflation has been subdued and public debt is currently at 45.7 per cent of GDP, thus leaving room for stimulus. Recently, the government announced a 364 billion baht (approximately US$11.2 billion) fiscal stimulus package for the fourth quarter of 2014 to create jobs and help rice farmers. The package covers delayed investment projects from the 2014 financial year, public facilities repair, refurbishing and anti-flood maintenance projects and a one-off payment to farmers. It is expected that revived government expenditure will boost sentiment and eventually lead to stronger business investments. At the same time, the government has expedited approvals of many projects that applied for the Board of Investment’s investment promotion privileges and concessions. Since the coup, projects worth 458.59 billion baht (US$14.1 billion) have been approved out of the 700 billion baht (US$21.6 billion) worth of projects awaiting approval.

Since Thailand is currently undergoing national reform, public spending should be geared towards repositioning the country’s economic fundamentals while honouring long-term fiscal stability. Infrastructure improvement is a must for Thailand to fully benefit from its geographical advantage at the heart of ASEAN. The NCPO made moves in the right direction when it approved a 2.4 trillion baht (US$73.9 billion) infrastructure development plan. The plan includes projects to improve the highway and water transport networks and Thailand’s air transport competitiveness, as well as a 127 billion baht (US$3.9 billion) project to construct six dual-track rail lines with a combined length of 887 kilometres. To deal with the upcoming integration with the ASEAN Economic Community, Thailand also needs to address supply-side challenges to increase competitiveness. For example, the agricultural sector should embrace integrated crop and harvest planning and improve post-harvest management to reduce reliance on government subsidies and create value-added products.

The Prayuth government has on its shoulders the public’s high expectations to carry out reforms that cannot be done under normal elected governments. Some government policies have a clear direction whereas some policies require further public debate. Whether the government will be successful in restoring growth and introducing reform within the expected time frame and amid increasing movement from Thaksin’s camp remains to be seen.

Dr Pisit Leeahtam is Dean of the Faculty of Economics at Chiang Mai University. Cynn Treesraptanagul is Dr Leeahtam’s research assistant.

Categories: Forum

Renminbi stepping in right direction toward internationalisation

East Asia Forum - Thu, 10/23/2014 - 04:00

Author: Thierry de Longuemar, ADB

Over the past several decades, we have seen how China’s high economic growth and increasing economic integration with other countries have led to a dramatic increase in its clout in global output and trade.

Just look at the facts. China is now the world’s second largest economy, accounting for 12 per cent of global gross domestic product in 2013. It is also the world’s largest exporter and second largest importer, accounting for about 12 per cent of world trade in 2013. Attracting more than US$110 billion in FDI in 2013, the PRC is the world’s largest developing-country recipient of FDI inflows. It is also the world’s largest holder of foreign exchange reserves, with a total of US$3.8 trillion in reserves at the end of 2013.

The PRC may be a globally significant economic and trading power, but the market share of its currency, the renminbi (RMB), lags well behind the US dollar and the euro.

To align the RMB with its growing global stature, the PRC has embarked on a strategy to internationalise the RMB. Typically, it is taking a gradual approach. In this, it has embarked on a number of initiatives designed to encourage the wider use of the RMB and raise its status in the international monetary system.

These measures include allowing foreign investors access to domestic capital markets, through programs like the Qualified Foreign Institutional Investor and the RMB Qualified Foreign Institutional Investor. It has also increased flexibility of the exchange rate — the RMB trading band has been widened to plus or minus 2 per cent. Also, through the use of RMB as a settlement currency for cross-border trades, the PRC has been gradually expanding the use of RMB in bilateral trade settlement agreements.

There are other steps being taken, such as the development of RMB deposit accounts and the opening of the offshore RMB market. The PRC has also opened offshore RMB centres, such as in Hong Kong, Singapore and London.

The result has been the emergence of the RMB in the international monetary system. For example, the RMB is beginning to play a role in international trade transactions. In December 2013, the RMB overtook the euro to become the second most used currency in global trade finance after the US dollar. China’s international trade has also grown at a compound annual growth rate of 19.1 per cent between 2001 and 2013.

The rapid expansion of RMB trade settlement together with other policy and regulatory steps have bolstered the growth of the RMB bond market in Hong Kong (also known as the dim sum bond market). From only 10 billion yuan (US$1.6 billion) in 2007 — the year when the first dim sum bond was issued — RMB-denominated bond issuance in Hong Kong significantly increased, to 372.1 billion yuan ($60.7 billion) in 2013. In the first three months of 2014, bond issuance reached 338.8 billion yuan ($55.2 billion).

The number of bond issuances has likewise climbed steeply from just 5 in 2007 to 891 in 2012 and 1,160 in 2013, while the number of bond issuers increased from just 3 in 2007 to 132 in 2013. From January through May 2014, 890 bonds were issued by 107 issuers.

While the bulk of RMB bond issuances still originate from companies based in the PRC and Hong Kong, issuances from other economies have also grown through the years. In 2010, issuances by firms outside PRC and Hong Kong accounted for only 5.4 billion yuan ($880 million). By 2013, their RMB bond issuances amounted to 76.1 billion yuan ($12.4 billion). As a share of total RMB bond issuance, their share has varied from about 13–35 per cent.

Trade settlements have contributed to the rise of the RMB as a global currency. According to the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the RMB only had a 0.31 per cent share in world currency payments in 2011. In March 2014, however, its share had increased to 1.62 per cent. The RMB’s ranking in world currency payments has also increased. In October 2011, it was ranked 17th in terms of usage but by March 2014, its ranking had shifted to 7th position. Indeed, the RMB is gaining on the Canadian dollar (which held a share of 1.83 per cent, ranking 6th) and the Australian dollar (with a share of 1.84 per cent and 5th in rank).

So while good progress has been made, there is plenty of work still to be done. Trade settlements and bond issuance have increased, but from a low base. There have been some relaxation in restrictions on capital flows, but the capital account is still largely controlled. The exchange rate is still controlled.

There is a positive trend in RMB as a reserve holding, but it is still small compared to other global currencies. Financial markets are still not as deep and liquid as those in developed countries, and are much less than those with global currencies. While the accomplishment is impressive, the RMB is still far from being a full-fledged international currency.

The PRC is moving in the right direction with these measures and producing positive results. But these developments with the RMB are more a result of the PRC opening up its capital account and deepening its financial markets rather than the pursuit of specific policy goals. All these trends will develop a critical mass over time and have the potential to start transforming the global monetary system.

Thierry de Longuemar is the Vice President (Finance and Risk Management) of the Asian Development Bank.

This article was originally published here at the Asian Development Blog, the blog of the Asian Development Bank, on 15 September.

Categories: Forum

Looking for a plus-one, Japan turns to Vietnam

East Asia Forum - Wed, 10/22/2014 - 16:00

Author: Kensuke Yanagida, Japan Institute of International Affairs

As Japan seeks to diversify its investments beyond China, an opportunity arises for Vietnam to attract greater international investment.

Over the past few years, firms invested in China have started diversifying their investment destinations and reducing their overreliance on China, in what is called the ‘China Plus One Strategy’. This is a result of rising labour costs and ongoing structural reforms in China. In this context, Vietnam appears to have great potential for attracting the interest of foreign firms looking for a destination for their next investment — to become the ‘plus one’. Vietnam is blessed with a young and highly-educated workforce, a sizeable domestic market and geographical advantages. If Vietnam could create the right conditions it could achieve what newly industrialising economies and China have in terms of greater economic development.

In recent years, Japanese firms have been more actively pursuing the ‘China Plus One Strategy’. While the inflow of Japanese FDI into China dropped in 2013, inflows into ASEAN have been increasing over the last decade — now annual Japanese FDI inflows into ASEAN exceed investment in China. According to a survey conducted by the Japan Bank for International Cooperation in 2013, China lost its top place for the first time as a promising destination for investment as perceived by Japanese firms. The top destination is now Indonesia — followed by India, Thailand, China and Vietnam. But this does not necessarily mean that Japanese firms are withdrawing from China: they are simply seeking out new investment destinations while continuing to uncover market opportunities in China.

Vietnam is one of the more favoured destinations for Japanese outward investment. The volume of Japanese investment in Vietnam has been rapidly increasing, particularly since the Japan–Vietnam Economic Partnership Agreement came into effect in 2009. The industries in which Japan invests the most are transportation equipment and electric machinery for the manufacturing sector. Vietnam is the world’s fourth largest market for motorcycles, so Japanese auto makers such as Honda and Yamaha as well as parts and components suppliers have been investing as well. Japanese electronics companies have also increased their investments, partly due to Samsung establishing a mobile phone factory to produce the Galaxy smartphone series. Panasonic is seeking market opportunities for home electric appliances and regards Vietnam as an important part of a broader emerging markets bloc. As for non-manufacturing sectors, significant investments have been made in the financial and insurance industries.

As Vietnam strives to create a stable and conducive environment for foreign investment, certain obstacles stand in the way. These include a lack of supporting industries, inadequate infrastructure, unstable macroeconomic conditions and a lack of transparency in regulatory and legal systems. Among these challenges, the lack of supporting industries and unstable macroeconomic conditions are closely interconnected. Vietnam has followed the typical pattern of East Asian production by engaging in intra-regional trade in primary and intermediate goods and exporting final goods to advanced markets. But exporting firms in Vietnam are mostly foreign companies that procure their raw materials and intermediate goods from abroad. There is little value-chain integration between large exporting firms and domestic supplier firms. As a result, Vietnam’s increased manufacturing exports do not contribute much to alleviating the current account deficit. Nurturing competitive domestic suppliers is therefore a key challenge facing Vietnam.

Japanese small and medium enterprises (SMEs) seeking business opportunities abroad could find themselves in win-win relationships with Vietnam. Japanese SMEs face various challenges in the domestic business environment: shrinking domestic markets due to an ageing population, large firms that contract with SMEs shifting overseas, and increasing competition with emerging foreign companies, to name a few. After the global financial crisis in 2008, Japanese SMEs accelerated their migration abroad to survive.

Vietnam should promote measures to accommodate these SMEs from Japan. Vietnam could benefit from the technological diffusion brought by Japanese FDI. Japanese SMEs are already looking to Vietnam. One such initiative is the Kansai Supporting Industry Complex built in the Long Duc Industrial Park in Dong Nai Province in 2013. The complex is designed to support and facilitate the establishment of foreign subsidiaries by SMEs from the Kansai region in Western Japan. Vietnam’s successful accommodation of Japanese investment will help domestic supporting industries grow and, in turn, Japanese SMEs will be able to enjoy local partnerships and access to local markets.

Both Japan and Vietnam are also involved in the Trans-Pacific Partnership (TPP) negotiations. When concluded, the TPP will help promote trade and investment, and it will also compel domestic economic and industrial structural changes. This will be difficult, particularly for developing countries like Vietnam that will need a process for strategically upgrading their industrial base.

In this context, Japan and Vietnam will be important partners. Both countries would benefit from closer economic relations and greater cooperation.

Kensuke Yanagida is Research Fellow at the Japan Institute of International Affairs, Tokyo.

Categories: Forum

Business as usual in post-election Suva?

East Asia Forum - Wed, 10/22/2014 - 04:00

Author: Nicole George, UQ

Fiji’s new parliament, led by Commodore Voreqe (Frank) Bainimarama, was sworn in on 6 October. In 2006, Bainimarama led the military coup that rendered the parliament inactive for eight years. Back then, Bainimarama promised that Fiji would return to electoral democracy, but not to the allegedly corrupt and ethnically discriminatory governance practices of the past. Rather, the new post-coup government would work to undo the relationship between the church, the state and indigenous customary authority, which has shaped Fiji’s political landscape since the country achieved independence.

Historically, debates on governance have regularly focused on recognition of indigenous paramountcy (for example in land management policy or in political and economic participation) or the legitimacy of declaring Fiji a Christian state. Racial divisions between the country’s Fijian and Indo-Fijian populations have become sharply politicised as a result. Bainimarama’s election win now suggests he has a mandate to revoke these longstanding principles.

Fiji waited many years for the promised elections and in the meantime lived with government by decree. These decrees included a suite of restrictive media decrees which have attracted wide regional criticism, but also large public spending programs improving public and village infrastructure, and more progressive decrees calling for a ‘zero tolerance’ approach to violence against women.

Even these progressive ‘achievements’ have not been without criticism. The government’s infrastructure projects have been subsidised by Chinese ‘soft loans’, which have increased as a result of Fiji’s Look North policy and its eagerness to build closer aid and development relationships with China. But China’s loans are said to come with high interest rates and on the condition that Fiji import Chinese materials and labour. Critics say these infrastructure projects have done little to build local business and employment opportunities.

Critics have also scrutinised government programs on women’s advancement. Shamima Ali from the Fiji Women’s Crisis Centre claimed that the way the zero tolerance decrees were implemented downplays state responsibilities to protect women from violence. Instead, they encourage women to reconcile with violent family members, and uphold the sanctity of marriage and the family. Christian and cultural norms continue to pervade the policing of gendered ‘crimes’ in post-coup Fiji, despite government rhetoric on the importance of breaking the link between church, customary authority and the state.

But these critical views were not reflected in the results of Fiji’s general elections on 17 September. Fiji First, Bainimarama’s party, won 32 seats in the 50 seat national assembly. This is a sizeable majority, but not the landslide some had predicted. The Social Democratic Liberal Party, led by Ro Teimumu Kepa, won 15 parliamentary seats. Their slogan, ‘Reclaim Fiji’, reflects a commitment to protect indigenous paramountcy, although this policy platform has been dismissed as regressive by Fiji First.

The opposition ranks also include three representatives of the National Federation Party, including former vice president of the Fiji Law Society, Tupou Draunidalo, and former University of the South Pacific Dean and Professor of Economics, Biman Prasad. These representatives will contribute to the opposition presence in the parliament and ensure that the government does not have things all its own way.

But even if Bainimarama’s ‘revolution’, as he terms his challenge to ‘race politics’, seems mandated by popular vote there is good grounds for questioning how far the promise of revolutionary change will be fulfilled.

The pervasive presence of military authority in the country seems unlikely to recede. At least six members of Fiji First are ex-military officers and many senior officials in the public service have been seconded from the military. The authoritarianism that has been a default response to the management of ‘dissidence’ inside the country is likely to continue. In the two weeks following the election, state security force brutality has again been in the spotlight, with members of the Fiji Police Force allegedly perpetrating extra-judicial violence against a retired school teacher.

On gender there is evidence of some concrete gains for women but also subtle indicators of policy backsliding. Eight women won seats in the new parliament, the opposition leader is a woman and all female members elected to the government benches have been allocated ministerial responsibilities. Dr Jiko Luveni, former Minister for Women, was elected unopposed to the position of Parliamentary Speaker. This is the first time a woman has held this role in Fiji. These are notable achievements in a region where women’s representation in institutional decision-making hovers under 4 per cent.

On taking up her new role in the parliament, Luveni expressed a hope that her example would inspire other women to follow a political career. But she, too, has been criticised for voicing opinions which reflect conservative ideas about appropriate conduct and dress codes for women. Under Luveni’s watch, conservative religious and cultural protocols continued to shape state policing responses to gender crimes and cases of violence against women. This is little reason to suppose this will change under the new government.

The challenge for the government will be to match its progressive policy rhetoric with positive tangible outcomes achieved through genuine political engagement. Despite his majority, many people did not vote for Bainimarama. For them his revolution is an imposed one. A continuation of the authoritarianism of the past eight years will only enhance their sense of ‘business as usual’.

Nicole George is a lecturer in Peace and Conflict Studies in the School of Political Science and International Studies at the University of Queensland.

Categories: Forum

Why ‘womenomics’ is the way forward for Japan

East Asia Forum - Tue, 10/21/2014 - 16:00

Author: Naohiro Yashiro, International Christian University

‘Womenomics’ is a key pillar of Prime Minister Shinzo Abe’s economic growth strategy. In 2013, just 64 per cent of Japanese women aged 15–64 were participating in the labour force — a low rate by OECD standards. As Japan’s labour force is already in decline, it is wasteful that women, and particularly those who have a higher education, have been underutilised. To address this, Abe has set a target to increase the ratio of female managers to over 30 per cent by 2020. In response, several large firms have set similar numerical targets.

But some are sceptical. As the ratio of female managers (including section chiefs) in Japanese firms was just 11 per cent in 2012, it will be difficult to triple this figure in eight years. If firms randomly increase the number of female managers regardless of their ability, this may be costly or discouraging to their male counterparts.

Why is raising the percentage of female managers so important for economic growth?

The current one-to-nine ratio between female and male managers indicates a serious misallocation of human resources, given that male and female management abilities do not differ. It is often said that the lack of female managers is not attributable to discrimination on an individual basis, but that there simply are not enough female candidates. But such logic depends on the nenko jyoretsu system, whereby seniority within the firm is largely determined by how long one has worked there rather than merit.

So current employment practices, such as women being forced into temporary or secretarial streams and out of work when they have children, have resulted in significant underutilisation of female human resources.

The extremely low female manager ratio is a result of outdated labour market practices. Seniority-based promotions used to be efficient when the industrial structure was dominated by the manufacturing industry. This is no longer the case, but the memory of Japan’s successful economic past has led to a strong inertia in Japanese firms. The older generation also has a vested interest in maintaining seniority-based wages.

Japanese employment practices are based on the need for multi-skill formation in the firm. Employees are frequently shifted from one job to another in the process of climbing up the occupational ladder to managerial positions. This is accompanied with on-the-job training, which is time consuming and, in the case of large firms, often means that an employee must relocate. Most Japanese employees have an implicit employment contract that guarantees long-term employment and seniority-based wages on the condition that employees are subject to the firm’s decision on what jobs they will do and where they will work. This employment style is a hangover from the social norm that husbands would earn money while wives would manage the household. Until the end of the 1980s most Japanese families followed this ‘social norm’. Today this model is still subsidised by the tax and social security system.

Current employment practices are a major obstacle for married women who wish to work full time. ‘Full-time work’ in Japan does not mean eight hours per day — it requires constant overtime. This practice has been an important means of adjusting down labour inputs during recessions in order to avoid lay-offs. But if both the husband and wife are working overtime, who will take care of the children? In this sense, under current employment practices, there is a trade-off between increasing women’s workplace participation and raising birth rates. In addition, when a firm orders either partner to relocate, families have to choose between family separation and one partner quitting their job. In most cases women leave their job.

A major factor behind the extremely low ratio of female managers in Japan is that it is necessary to stay in a particular firm for a long time to secure a promotion. The average length of female employment is shorter than that of their male counterparts, due mainly to women’s disproportional responsibility in the home. Thus if promotions were not based on seniority the gender disparity among managers would be smaller.

Whether or not a move away from seniority-based promotions is feasible depends on the type of skills required. If the necessary skills are firm-specific and can be formed only through on-the-job training, age-related promotion is inevitable. But if the necessary skills are general, or will easily become obsolete through information technology changes, seniority need not matter. Though general skills are becoming more prevalent as information and communication technologies develop, many Japanese firms still find it difficult to change traditional promotion practices.

Thus the easiest way to ‘achieve’ the target of 30 per cent female managers, and unfortunately what some firms are doing, is to create ‘nominal female managers with no authority’ while maintaining current employment practices. But the alternative would be better — discarding the current internal promotion system and recruiting qualified managers, either male or female, Japanese or foreign, from outside of the firm.

Abe’s 30 per cent female manager ratio is not a target for its own sake: it aims to transform Japanese employment practices to a more market-based system. This would entail promoting the principle of the same wage for the same job instead of the seniority based wages; establishing a compensation scheme for professional jobs that is independent of the length of working hours; and developing a tax and social security scheme that does not implicitly support a particular division of labour within the family. These policy targets can only be achieved through structural reform of Japanese labour markets.

Naohiro Yashiro is a visiting professor of economics at the International Christian University, Tokyo.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘A Japan that can say ‘yes”.

Categories: Forum

Balancing the short and long term in Indonesia fuel subsidy debate

East Asia Forum - Tue, 10/21/2014 - 03:46

Author: Keoni Indrabayu Marzuki, RSIS

Despite having won the president and vice-president posts respectively, Joko Widodo and Jusuf Kalla will possess little control, if at all, on the formulation of the next Indonesian budget for fiscal year 2015–16. One particular issue that concerns the new administration is the large portion of funds for energy subsidies, particularly fuel subsidies.

To ensure his administration would have more fiscal space to fund new government projects and minimise the budget deficit, President-elect Joko Widodo (Jokowi) asked outgoing president Susilo Bambang Yudhoyono to increase the price of subsidised fuel as his final policy gesture before stepping down. President Yudhoyono turned down the request on the grounds that increasing the price of subsidised fuel would increase the economic burden on the Indonesian people.

Amending the fuel subsidy budget would be an important step towards fuel subsidy reform. The government allocated 300 trillion rupiah (about US$25 billion) to energy subsidies in 2014. Around 80 per cent of the energy subsidy fund, or about 250 trillion rupiah, is spent on fuel subsidies alone. In his proposed 2015-16 budget, Yudhoyono allocated 290 trillion rupiah for fuel subsidies.

The new budget also forecasts a relatively large fiscal deficit: 2.32 per cent of GDP. Finance minister Chatib Basri estimated that by increasing the price of fuel and thereby reducing the subsidies, the government could reduce the deficit ratio to 1.32 per cent.

External influence such as the end of quantitative easing by the US Federal Reserve may negatively affect the rupiah in the coming months. The weakening of the currency would mean that the new administration would have to spend more to buy oil on the international market. Consequently, fuel subsidies may impose a severe burden on the budget.

Fuel subsidies are ineffective. They were initially intended to help the poor access affordable energy supplies. But as the economy grew, fuel subsidies benefited the middle and upper classes instead. The Ministry of Energy and Mineral Resources estimated that around 70 per cent of subsidised fuel is consumed by the middle and upper classes.

Fuel subsidies also hinder much-needed infrastructure development. As fuel subsidies consume about 20 per cent of the state budget, it constrains the remaining fiscal allocation for infrastructure development. Consequently, Indonesia still suffers from basic infrastructure deficiencies in numerous public sectors, including clean water, sanitation, health, public transportation, communication, education and electricity despite the booming economic growth in recent years.

Ultimately, fuel subsidies undermine Indonesia’s energy security by encouraging extravagant demand as fuel prices are relatively low. With Indonesia’s oil production output stagnating, the government would have to import more oil. Dependence on foreign sources renders Indonesia’s energy security vulnerable to supply disruptions and rapid price fluctuations.

In addition, heavily subsidised fuel consumption also undermines Indonesia’s effort to diversify its energy intake, as demand for cheaper fuel will undermine demand for other forms of available energy. Furthermore, excessive consumption could also lead to a supply crisis as it boosts fuel consumption far beyond the allotted quota.

The path to reallocating fuel subsidy funds is politically difficult. First, Jokowi would have to convince the opposition to pass the proposed revision to the budget, which was approved by parliament in September. The government’s coalition would have to secure an additional 20 per cent of parliamentary votes to acquire a simple majority. Golkar and the Democrat Party (PD) would be ideal allies. However, political developments in Golkar, combined with the Indonesian Democratic Party of Struggle’s (PDI-P) rivalry with PD, may have closed this opportunity in the short term.

The infancy of the new administration will also be a challenge. Putting forward such a bold program so early in the life of the government may invite a severe public backlash. Anger would be directed at the PDI-P as the party has always rejected President Yudhoyono’s policy to increase the price of fuel. Such a flip-flop would weaken PDI-P’s popularity in the future.

Ultimately, time is not on Jokowi’s side. The primary concern is how to cushion the poor from the negative implications of expected price hikes. The new administration would have to introduce temporary relief to minimise such impacts. Finding a solution within a tight deadline may be challenging for the administration.

There are a series of steps to enact fuel subsidy reform, but considering the challenges Jokowi faces, it is of utmost importance to develop a plan to cushion the poor from the adverse economic effects.

Direct cash assistance schemes may be a viable short-term option. But such a policy would not tackle the fundamental problem of economic empowerment, as the poor will face the same economic hardship after the cash assistance program ends.

The best solution would be to redirect the fuel subsidy fund into infrastructure development to encourage job creation, thus increasing the purchasing power of the poor. Unfortunately, such a program would take too long to materialise. The new administration would have to find a balance between short and long-term measures to alleviate potential negative consequences.

Most importantly, the public needs to be assured that the fuel price hike does not mean that fuel subsidy funds are being reduced, but rather reallocated into other sectors essential for the people’s social welfare.

Keoni Indrabayu Marzuki is a research asociate of the Indonesia Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.

This article was first published here, as RSIS commentary CP14198.

Categories: Forum

Very few limits in tough Australian anti-terror laws

East Asia Forum - Mon, 10/20/2014 - 14:43

Author: George Williams, UNSW

Australia, like other nations, is facing an enhanced threat to its national security from citizens who travel to conflicts in Iraq and Syria, and then return home with a radical outlook and training in terrorism. This has led the government to raise the nation’s terrorism public alert level to ‘high’, which indicates that a ‘terrorist attack is likely’.

The Australian government, led by Prime Minister Tony Abbott, has embarked on the biggest expansion of Australia’s anti-terror laws since the 2005 London bombings. In doing so, it is building upon the extraordinary number of anti-terrorism laws already enacted in Australia.

Prior to this latest round of law-making, the Australian Parliament had enacted 61 anti-terrorism laws. Australia’s output of anti-terrorism laws exceeds that of nations facing a higher threat level. In an analysis spanning a number of democratic nations, Professor Kent Roach of the University of Toronto has described Australia’s response as being one of ‘hyper-legislation’.

Australia’s anti-terrorism laws are striking not just in their volume, but, more significantly, in their reach. In particular, the laws include three regimes not currently found in any comparable country, such as the United States, the United Kingdom or Canada.

The first regime enables the Australian Security Intelligence Organisation (ASIO) to question and detain any person, including Australian citizens not suspected of terrorism. They can be held in secret for a week and jailed if they refuse to answer any question put to them by ASIO. Journalists can also be jailed if they report on the operation of the regime. No other democratic nation permits its domestic spy agency to carry out this kind of action.

The second is preventative detention orders, which permit a person to be held without arrest or charge in secret detention for up to 14 days. The person cannot tell anyone they are being detained, or for how long. They can only contact their employer and one family member to say they are ‘safe, but not able to be contacted for the time being’. It has never been clear where Australia got the idea for this regime. Again, not even nations facing a long-term, higher threat of terrorism, such as the United States, have enacted such a law.

Under the third regime, control orders can be sought by the government to regulate almost every aspect of a person’s life, ranging from where they work or live to the people to whom they can talk. A person can even be subject to house arrest. All this can occur without a trial. Australia copied this scheme from the United Kingdom. But the United Kingdom’s scheme has since been repealed in favour of a less intrusive regime, leaving Australia alone in maintaining such a law.

These three regimes were enacted at the height of the ‘war on terror’ and are due to expire in 12 to 18 months. None has proven to be effective or necessary and all have been recommended for repeal by independent inquiries and reports.

Instead the Abbott government has announced that, as a response to the problem posed by foreign fighters, each of these regimes will be extended for a further 10 years.

In addition, new legislation will introduce a range of new measures. One Bill already passed by Parliament allows greater surveillance of computer networks, grants immunity from prosecution to intelligence officers engaged in special operations and exposes journalists to jail for up to 10 years for publishing even general information about such special operations.

A second Bill now in Parliament covers a wide range of matters, including the retention of biosecurity data from people entering or leaving Australia. It also introduces new criminal penalties for advocating terrorism and would allow Australians to be jailed for up to 10 years for entering any area declared by the government to be a no-go zone on the basis that a listed terrorist organisation is engaging in hostile activity there. A person could escape conviction only by proving that they went to the area solely for a reason identified by the government as being legitimate.

A third bill is also proposed. It will require telecommunications companies to retain metadata information on calls and internet use.

Law-making about terrorism is far from over. In Australia’s case, the fact that it is the only democratic nation in the world without some form of national Bill of Rights is telling. The absence of this check means that there are very few limits to the laws that Australia might pass in response to the threat of terrorism.

George Williams is the Anthony Mason Professor of Law at the University of New South Wales.

Categories: Forum

Reconciling Japan’s security policy with Northeast Asian stability

East Asia Forum - Mon, 10/20/2014 - 04:00

Author: Ben Ascione, ANU

On 1 July 2014, the Abe government made a cabinet decision to reinterpret the Article 9 peace clause of Japan’s constitution to recognise the exercise of collective self-defence under limited circumstances. While the scope of the proposed changes are an evolution rather than a revolution in Japanese security policy, especially due to the tough negotiations with Abe’s coalition partner New Komeito, furore and misconception have surrounded the move.

The cabinet decision addresses four areas. First is the remit for the Self-Defense Forces (SDF) to respond to grey-area infringements short of an armed attack against Japan. Second is narrowing the definition of activities which are banned because they constitute an integral part in the use of force. This would enable the SDF to provide more rear-area logistical support from non-combat zones to ‘armed forces of foreign countries engaging in activities for the security of Japan or for the peace and stability of the international community’.

The third area is the loosening of restrictions so that SDF personnel participating in UN peacekeeping operations will be able to use weapons in line with UN rules of engagement. The final area is allowing the SDF to come to the aid of a ‘foreign country in a close relationship with Japan’ if three conditions are satisfied: the attack threatens the Japanese people’s constitutional right to ‘life, liberty and pursuit of happiness’; there are no other means to repel the attack; and the use of force is limited ‘to the minimum extent necessary’.

So why the backlash, given the limited scope of these changes? The UN Charter declares that collective self-defence is a prerogative of all sovereign states, and the cabinet decision merely seeks to move Japan from a total self-ban to partial recognition of this internationally recognised right. Moreover, the Japanese Diet needs to amend a number of existing laws before the new interpretation can be implemented.

Abe has long called for formal revision of the constitution to abolish Article 9, but the military allergy — or anti-militarism — in Japan remains strong nearly 70 years after World War II. Defenders of Article 9 promote it as a model for Japan to hold up to the world, challenging the idea that the ability to go to war defines ‘normal’ state behaviour and confers prestige. They fear that Abe’s changes will provoke and entangle Japan in conflict rather than bolster the country’s security.

Japanese protesters also distrust Abe’s intentions and the ideology he represents. Ignoring popular sentiment, he recently forced through a state secrecy law and relaxed Japan’s weapons export ban. Abe also leads or participates in numerous parliamentary study groups with extreme revisionist convictions related to topics including history, patriotic education, the Yasukuni Shrine and the ‘comfort women’ issue. Abe does not have a broad mandate for change on any of these issues. The majority of the public would prefer him to focus on revitalising the economy.

There are pockets of support in Japan for Abe’s moves on security policy. Right-wing nationalists believe that Article 9 besmirches the honour of Japan’s imperial past and is a shackle to its just place as a fully sovereign state. But many moderate Japanese defence specialists have welcomed the cabinet decision on the grounds that the country’s security policy needs to respond to security challenges in the post-Cold War era.

Some have expressed frustration that the new move is a symbolic rather than a substantial recognition of the right to exercise collective self-defence. By their reckoning more should be done, including expanding the scope of permissible peacetime activities that the SDF can conduct with other nations to allow for enhanced contingency planning and joint military exercises. Legal inconsistencies due to the peculiarities of Japan’s positive list system of what functions the SDF may perform also need addressing.

But riding Abe’s wave to generate momentum and break through the military allergy and change Japan’s security policy has come with unwanted side effects. Japan’s relations with China and South Korea have hit unprecedented post-war lows, and the task of upgrading Japan’s security policy has been unnecessarily complicated by Abe’s stance on revisiting Japan’s history issues.

China and South Korea stress that Abe’s historical revisionism means he must not be trusted on collective self-defence. Such pronouncements, including during President Xi Jinping and President Park Geun-hye’s joint summit in Seoul in early July, offer an easy opportunity for cheap political point scoring at home. But Abe handed them the issue on a silver platter when he visited Yasukuni Shrine in December 2013, where 14 class-A war criminals are enshrined, and by his government’s ‘re-examination’ of the Kono Statement on the treatment of wartime ‘comfort’ women.

The US, having long called for Japan to take on greater security roles commensurate with its economic capacity, has welcomed the cabinet decision as a positive step to strengthen US–Japan alliance cooperation and increase Japan’s contributions to regional peace and stability. America’s support should also be understood in the context of President Obama’s emphasis on multilateral cooperation and the US ‘rebalancing’ to Asia.

With this approach to security it is hoped that Japan’s exercise of collective self-defence can contribute to alleviating some of the US defence budget pressures after the billions spent on Afghanistan and Iraq, the global financial crisis and the US government shutdown in October 2013. A sense of urgency is involved, as the US and Japan have declared their intent to upgrade their defence cooperation guidelines by the end of the year.

But for Japan to be able to say yes to collective self-defence in a more meaningful way, where it will truly be able to make ‘proactive contributions to peace’, it has to convince more than its own defence specialists and the United States. China, South Korea and the broader Japanese public also need to be brought on board. The domestic political dynamics in China and South Korea make this a complicated task. But there are a number of measures Japan can take to lay the groundwork.

First, the Japanese government must not undermine but strengthen official positions, such as the Kono Statement and the Murayama Statement, which acknowledge wartime transgressions. This should include a moratorium on Yasukuni Shrine visits by Japanese prime ministers.

Second, Abe’s assertion that the door for dialogue is always open must go beyond political rhetoric, and greater efforts must be taken to realise bilateral leaders’ summits with China and South Korea. A bilateral meeting with President Xi Jinping while Abe is in Beijing for the APEC Leaders’ Meeting in November presents an excellent opportunity to start.

Third, Japanese, Chinese and South Korean leaders must publically acknowledge the mutual importance of the Japan–China and Japan–ROK bilateral relationships. The frame through which the public in each country perceives the bilateral relationship must be broadened to emphasise areas of cooperation rather than the relentless focus on the territorial disputes and history issues that dominate mainstream media. The Senkaku/Diaoyu Islands issue presents a particularly dangerous scenario and greater efforts from both countries are needed to reduce tensions and avoid an accident that could spark conflict. Establishing a military-military hotline to deal with emergencies would be a good first step.

Fourth, Japan’s cooperation with China and South Korea should be boosted in areas of mutual importance, such as the environment and energy efficiency.

Finally, military-level confidence-building among the three Northeast Asian states should be bolstered. The recent announcement of joint military exercises in Australia with China and the US under Exercise Kowari in October shows that such cooperation is possible. Such exercises could be expanded in the future to include Japan and South Korea.

China and South Korea have often interpreted Japan’s adherence to Article 9 as a message that the country is a non-actor in security affairs, with the underlying implication being that Japan might still be a dangerous country were it not for the strict legal barriers and the US cork in the militarist bottle. Japan must emphasise its post-war record as a peaceful nation and demonstrate that it can play a positive and active role in security affairs that can be reconciled with the interests of all regional actors.

Ben Ascione is a PhD candidate in international relations at the Crawford School of Public Policy, The Australian National University, an associate researcher at the Japan Center for International Exchange, and an associate editor at the EAF Japan and North Korea desks.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘A Japan that can say ‘yes’‘.

Categories: Forum

The puzzle of Chinese political power

East Asia Forum - Sun, 10/19/2014 - 18:00

Authors: Peter Drysdale, EAF, and Ryan Manuel, ANU

When Xi Jinping ascended to the Chinese presidency, he, Premier Li Keqiang and their streamlined seven-person Politburo Standing Committee faced serious economic challenges at home as well as increasingly complex issues to manage abroad.

Domestically, the Bo Xilai affair hovered over the leadership transition ominously, underlining the need to deal with disquiet among the Chinese public over corruption and the relationship between the state and economic power.

If Xi wanted to secure the popular support, he needed to deal with state monopolies; but in dealing with the monopolies he ran the risk of undermining his power base if he wasn’t prepared to see off threats from some very powerful interest groups that were becoming a more and more important feature of the economic and political landscape.

Internationally, there was the issue of how China’s rising power played into the relationship with the United States, economically and strategically. In the distance, the looming territorial issues with America’s allies and partners in the neighbourhood had the potential to get out of control.

Seeing off these threats required considerable focus of power.

Some say that, as China’s President and Party Secretary, Xi is now the most powerful leader of China since Mao. This power comes partly from Xi’s personal character, lineage and image, and partly from the overt centralisation of power that has been put in place around his leadership. While holding the reins of power may make Xi’s job easier today, down the track it may make it more complicated, and urge on him more caution.

In the week’s lead, Shen Dingli of Fudan University suggests that the concentration of power around the presidency does not compromise the virtues of ‘democratic centralism’ that was put in place precisely to check Maoist-type excesses, but rather strengthens its accountability and guards against abuse by the likes of Zhou Yongkang. Bringing the monopolies, the military and the Party into line to assert the coherence and integrity of the state is one massive task, bound to elicit an image of authoritarian aggrandisement. But, Shen warns, to conflate centralisation with a return to authoritarianism is premature.

Xi’s ability to centralise power comes partly from his ability to project his image as a ‘man of the people’ — taking minibuses rather than motorcades, ordering tripe at Beijing restaurants without ceremony, riding on bicycles with his daughter — and his gifts in dealing with the public that previous leaders like Jiang Zemin and Hu Jintao can only envy. Praise of Xi’s’ genial personality is broadcast far and wide.

Xi’s popular image has helped to put him in charge. Two decisions in particular are of importance.

The first is his re-entrenchment of idea of a ‘mass line’ — officially, a reminder to Party officials to ‘better understand, represent, and prioritise the wishes of the people'; unofficially, an efficiency and anti-corruption drive using Party offices rather than government ministries to make it work. The campaign ‘saved 586,000 meetings, removed 160,000 phantom staff, returned 115,000 vehicles to government use from private accounts and stopped 2580 unnecessary official buildings from being built’. It has also brought over 200,000 Party members (mostly government officials) to Party tribunals and disciplinary actions. This so-called ‘tigers and flies’ campaign appears very popular — and it’s caught some very big tigers, most notably Mr Zhou, but also many senior officials, generals, popular commentators and other important people.

While the ‘tigers and flies’ anti-corruption campaign is populist gold, it scares the rest of the fauna silly. The assault on Zhou broke what many considered an unspoken rule to not go after Party heavyweights or their families after they have retired from office. It’s reported that Jiang Zemin and Hu Jintao urged Xi to rein in the anti-corruption campaign for this reason. If, as the analysis right now suggests, the campaign is winding back on the hunt for tigers, reading about the capture of flies is likely to be less engaging.

But Xi’s other push towards centralisation may have effects that are more long-lasting. Unlike previous Chinese leaders, Xi has put himself in charge of a number of ‘leading small groups’ (like task forces) designed to push major reforms and tackle serious issues. So Xi is now leading the Economics Small Leading Group, and calling for ‘a revolution in the way the country produces and consumes energy’. Whether it’s foreign affairs, Taiwan, maritime security, internet governance, economics and finance, or ‘comprehensive deepening of reform’, the Presidency is in the middle of the action.

It appears that Xi has become the so-called Chairman of Everything, centralising authority for almost all policy to committees at the centre of the state. This has huge advantages in coordination of the affairs of the state and dealing with big issues that were threatening to get out of hand. On the other hand, it might yet prove what Sir Humphrey in Yes Minister would describe as a ‘courageous’ decision. The danger is one of the centralisation of failures in dealing with any among a myriad of these issues, in a system where the accountabilities are not exactly clear. That centralisation of failure could come at a big and personal political cost.

The puzzle is whether the personalisation of policy heft can translate into governance grunt. In the short term, moves like lifting the control of local courts up a level to remove them from local interference is likely to deliver better outcomes to Chinese citizens and taking the privileged down a peg or two likely to reassure them, but the climate of fear that constrains worthy activists as well as venal officials creates an environment in which a major policy misstep could unleash a tsunami of criticism from either side the political spectrum.

Let’s hope for success, as success could hopefully bring a major advance in Chinese political accountability.

The irony and the reality is, of course, that it is exactly the absence of Xi’s (and the leadership’s) broad representative legitimacy, in some form or another, that creates both the risks to its continuing authority as well as the hazards to its collective democratic exercise of authority.

Peter Drysdale is Editor of the East Asia Forum.

Ryan Manuel is Research Fellow in China in the World at The Australian National University.

Categories: Forum

With Xi’s new power is collective leadership over?

East Asia Forum - Sun, 10/19/2014 - 04:00

Author: Shen Dingli, Fudan University

There is currently much talk about whether China’s President Xi Jinping is shifting away from collective leadership. Western observers tend to conclude that, given his command of all powers since becoming Chinese communist party chief and state president, Xi is centralising power around himself. But that is a premature conclusion that bears more careful scrutiny.

China’s communist party has always claimed to adopt ‘democratic centralism’. And, at different times, the party has emphasised either the ‘democratic’ or ‘centralist’ aspect. The key has been to strike a balance. On the one hand, an overly democratic system may act with low efficiency. The recent inability of the US Congress to make a compromise on budgetary sequestration is a key example of this. On the other, an overly centralist system tends to push the paramount leader’s own agenda while ignoring the ideas of others. For example, George W. Bush’s pre-emptive war against Iraq in 2003 — without adequate intelligence or consensus in the United Nations Security Council — has, mistakenly and unnecessarily, led both America and Iraq in the wrong direction.

China’s overall system, by design, is more centralised than many in the west, so it has also been burdened by a number of frustrations in the past — such as the launch of the Cultural Revolution. China has adopted a series of political reforms to prevent such problems from arising again. For instance, China now employs a fixed five-year term system — instead of the lifelong system under Mao — to set its political cycles. More emphasis is also put on collective leadership by allowing for effective and more regular policy consultations and deliberations.

The division of jobs within China’s Politburo level seems to be an institutional means to attain collective leadership, but it hasn’t always been successful. Though policymaking behind the wall of the Forbidden City tends to be opaque, it is still possible to feel that members of the Politburo Standing Committee — such as Zhou Yongkang, who took charge of legal and judicial matters between 2007 and2012 — could abuse collective leadership for personal ambition. While Zhou never paralysed the system, his actions have adversely affected the efficacy of collective leadership.

With this in mind, China has to improve its leadership system to make it truly collective, and prevent any individual from monopolising power under the guise of collective leadership. Xi’s return to a more centralised system seems to be part of his efforts to manage effectively these power relations so as to prevent a situation like Zhou’s power trip from re-emerging. Looking from the outside, Xi has so far successfully managed this process.

The current domestic and international circumstances required that Xi move to centralise. In addition to the weak collective leadership of Standing Committees in the past, China’s rapid growth has rendered the present government organisation less effective in responding to the demands of economic and social reform. Meanwhile, the international response to China’s rapid ascendance also warrants cordial — yet decisive — Chinese leadership. During China’s own fast transformation and a period of regional, as well as global, power transition, China needs a determined leader who can command collective leadership domestically.

Obviously, in the course of strengthening the effectiveness of collective leadership the chance of shifting away from its original intent may actually increase. But as long as Xi allows policy consultation and deliberation before decisions are made, his revamped system may actually enhance China’s ‘democratic centralist institution’.

Given his expected ten-year tenure, Xi seems to be poised to make the democratic centralist system a stronger and more efficient institution. At the same time, to avoid the pitfalls of shifting away from collective leadership, he must — after two years of consolidating his power base — be aware of the importance of both leading his team and sharing his power.

Shen Dingli is Professor and Associate Dean at the Institute of International Studies at Fudan University.

Categories: Forum

Modi’s UN speech shows his foreign policy will walk a well-worn path

East Asia Forum - Sat, 10/18/2014 - 04:00

Author: Krishnendra Meena, Jawaharlal Nehru University

Many have hailed Prime Minister Narendra Modi’s maiden speech to the United Nations General Assembly as a historic shift away from the speeches of past Indian heads of government. But in reality, Modi’s speech is more a continuation of the Indian government’s stance on many international issues, albeit with more flourish and charisma, which comes naturally to Modi when he speaks in Hindi.

Modi’s speech covered international issues like terrorism, UN Security Council reform, global development, climate change, the Pakistan question in India’s foreign policy and India’s neighbourhood. Modi’s remarks on most of the issues bore a close resemblance to the previous government’s views. First, Modi began with the concept of Vasudhaiva Kutumbakam, or ‘the world is one family’, which has often been used by Indian leaders in the United Nations since  the 1960s and 1970s. More recently, in 2005,  his predecessor, Prime Minister Manmohan Singh opened his UN speech with the same phrase from Hitopdesha and Panchatantra, Sanskrit fables with morals relevant to statecraft. The phrase is appropriate to express globalist ideas. Many such instances are visible in Modi’s speech to the UN.

The call for reform of the UN Security Council has been a constant feature of India’s UN policy since the end of the Cold War. For the last ten years former Prime Minister Manmohan Singh consistently spoke about reform at international fora. The previous United Progressive Alliance government was thus able to garner support from the international community with President Obama declaring US support for reform during his visit to India in November 2010.

In his speech, Modi called for UN Security Council reforms in the coming years, particularly in light of the post-2015 development agenda. Modi’s call for a world without the various ‘G’ groups — like G7, G4 and G77 — and emphasis on ‘G-All’ resonates well in the UN. But the Bharatiya Janata Party (BJP), the political party to which Modi belongs and the largest party of the Modi-led National Democratic Alliance, don’t agree. The BJP believe states should maximise their own relative power through such groupings. India actively takes part and has been at the forefront of groups like the BRICS and IBSA (India, Brazil and South Africa).

Modi’s implicit argument that terrorism is exported to India, a snide reference to Pakistan, has been part and parcel of India’s policy on the issue for decades. But the call for ratification and adoption of the Comprehensive Convention on International Terrorism is a novel one — no previous Indian prime minister has expressed it in such clear terms. The issue plaguing the Convention — which has been under discussion since 1996 — is the definition of ‘terrorism’ itself. The acceptance of the definition depends on clarifying whether terrorism can be committed by states as well as non-state actors. Many believe that in many parts of the world terrorism is sponsored by state actors and many state activities are not covered under the current definition.

The Pakistan question was also mentioned in the UN General Assembly address. But the reference was more benign than previous remarks made by Modi in alluding to the recent floods and the continuity of India’s policy of bilateral negotiations between the two countries on crucial issues.

The novelty in Modi’s speech was on two counts: the emphasis on the importance of India’s immediate neighbourhood in South Asia and the importance of yoga as a lifestyle. On the former, Modi declared that ‘a nation’s destiny is linked to its neighbourhood. That is why my government has placed the highest priority on advancing friendship and cooperation with her neighbours’. Nothing could be more relevant in the present context, especially if India intends to project out of the region, and as China’s expanding economic reach is felt in South Asia. This and promoting yoga is in perfect harmony with the BJP’s ideas of cultural nationalism. A peaceful neighbourhood may be the first phase for India’s grand ambitions.

Modi’s first address to the UN dispelled hopes that he could deliver what India has been waiting for since independence. There were glimpses of pragmatism and change in Modi’s speech but it mostly represented a continuation of India’s foreign policy under previous governments.

Krishnendra Meena is an Assistant Professor in Political Geography at the School of International Studies, Jawaharlal Nehru University, New Delhi.

Categories: Forum

Vietnam’s education system: still under construction

East Asia Forum - Fri, 10/17/2014 - 16:00

Author: David Brown, California

For Vietnamese youth, a university degree is the entry ticket to the middle class and a promise (often unfulfilled) of an urban professional job. Enrolment in higher education has grown from 162,000 in 1992 to over two million last year, some 25 per cent of the nation’s college-age population. Business, finance and foreign trade degrees are prized, a consequence of the Vietnamese economy’s globalisation.

To meet demand for diplomas, universities have sprouted like weeds. Study after study reports that curricula are outdated; teachers overmatched and underpaid; and graduates lacking in job-ready skills. ‘We have an excess of low quality universities and a dearth of high quality ones’, Minister of Education Pham Vu Luan told the nation’s National Assembly late in 2011

Nationwide examinations qualify 20 per cent of high school graduates for places in Vietnam’s elite and relatively inexpensive national universities. Most of the rest find berths in provincial universities, vocational colleges or private universities — a sorting mechanism that depends partly on exam scores and partly on family finances. And, with good grades or bad, the children of Vietnam’s political and business elite typically head to Australia, the United States, United Kingdom or China for higher education.

After debating four drafts, the Assembly passed Vietnam’s first Law on Higher Education in June 2012. The law aims to give university administrators autonomy while relegating the Education Ministry to quality control. In a bid to bring some schools up to world standards, a select handful of national universities will get more, and more predictable, support from the state budget. Private universities, provided that they don’t aim to make a profit, are now eligible for local government support in the form of land grants or subsidised loans. If a substantial number of Vietnam’s 419 (by last count) institutions of higher learning go out of business, the new law implies, so be it.

Though no one seems satisfied with the operation of the new law, it is probably too soon to look for big changes. Administrators have yet to use their new autonomy to offer teaching staff a living wage or better working conditions. As a result, professors continue to put much of their energy into activities that lucratively leverage their prestigious titles (for example, private tutoring, setting up private research institutes or moonlighting as advisors to NGOs or private firms) instead of into teaching.

Science and engineering was once the most popular course of study, supplying staff for state enterprises. A few good schools survive from the era of the five year plan, in particular Bach Khoa Polytechnic in Hanoi. Even so, there’s a disconnect: Vietnamese college graduates simply don’t have the basic skills sought by multinationals that have committed billions of dollars to manufacturing in Vietnam.

The US chipmaker Intel has responded by promoting initiatives to produce more and better engineers — staff who are incidentally proficient in English, of course. Among its objectives, Intel says, is to ‘train the deans and rectors of the colleges and universities to… be more strategic and forward looking’.

That’s not enough, say Vietnamese graduate students at several Melbourne universities, whose open-ended debate on their nation’s education future has just spawned a perceptive and prescriptive book, Higher Education in Vietnam: Flexibility, Mobility and Practicality in the Global Knowledge Economy. Western ideas are a fine starting point for reform, they say, but higher education must also be faithful to Vietnam’s core values and educational tradition, so that ‘the best of the past continues into the future’.

In Vietnam, it’s assumed that the elite state universities will retain their place at the top of the academic pecking order if only because their students are uniformly bright and ambitious. Public debate focuses on alternative models, in particular on new universities that describe themselves as ‘not for profit’, schools like Ton Duc Thang (TDTU) and Hoa Sen universities. With substantial support from the Ho Chi Minh City government, these two schools have grown from modest vocational schools to institutions with a reputation for turning out graduates who have no trouble finding good jobs. Both, however, are caught up in controversy.

Aiming to build its reputation for research, Ton Duc Thang University paid a distinguished overseas Vietnamese professor handsomely to launch an academic journal. When copies of the first number arrived from the Springer publishing house, however, they bore no marks of a TDTU connection. The university has sued the professor, providing plenty of titillating copy for Saigon newspapers.

Meanwhile, a stockholder revolt has convulsed ‘non-public’ Hoa Sen University. As required by the 2012 higher education law, Hoa Sen reorganised as a private corporation and distributed shares of stock to its employees. Little did it (or, presumably, the drafters of the new law) imagine that many of the recipients would sell their shares to outsiders. By July, these investors had accumulated enough shares to oust the school’s much-admired founder-rector, with the apparent intention of substituting staff willing to turn a profit for shareholders.

The plan for ‘Fulbright University Vietnam’ (FUV) has also gained public attention.

For a decade now, there have been for-profit branches of foreign universities in Vietnam. RMIT Vietnam, affiliated with the Royal Melbourne Institute of Technology, is the best known. For hefty fees, it teaches a solid business curriculum mainly in English.

Now a group linked to Harvard University aims to take the foreign-affiliated model considerably further. It is raising funds in Vietnam and abroad to endow a full-featured institution on the foundation laid by two decades of teaching economics to civil servants in Saigon. The plan seems to have won strong central government backing, including tacit agreement that FUV can design its curriculum independent of Ministry of Education oversight. The first students will be enrolled in 2016.

The educational system that can support the institutions of a modern Vietnam is still under construction. Critical to the success of that venture will be the energy of the tens of thousands of students returning from study abroad — provided that the system can slot them into positions that fully engage their talents and reward them accordingly.

David Brown, a retired US diplomat, writes often on contemporary Southeast Asia. He is indebted to several young Vietnamese scholars, in particular Thao Vu, for assistance with this article.

Categories: Forum

The future of the Shanghai Cooperation Organisation

East Asia Forum - Fri, 10/17/2014 - 04:15

Author: Swagata Saha, Observer Research Foundation

China recently reaffirmed that it backs India and Pakistan becoming members of the Shanghai Cooperation Organisation (SCO). At the 14th meeting of the Council of Heads of States of SCO on 12 September, Chinese President Xi Jinping called for full membership for SCO observers, including India and Pakistan.

The SCO is a regional security and economic grouping of Russia, China, Uzbekistan, Kazakhstan, Tajikistan and Kyrgyzstan, operative since 2004. In 2005 India became an observer, joining Iran, Pakistan and Afghanistan. Sri Lanka, Belarus and Turkey are dialogue partners. From its earlydays at the SCO, India has shown willingness for a more substantial role at the organisation.  In June 2011, the SCO approved a ‘memorandum of obligation’ which enabled non-member countries to apply for SCO membership.

China has been attempting to shape a non-Western security grouping to counterbalance NATO and allow China more room for military action in Asia. The SCO, often dubbed the Asian NATO, has been dominated by Russia and China. Since Xi became president, Russia and China have been strengthening ties with joint naval exercises, economic roundtables and a US$400 billion gas deal, all taking place in first quarter of 2014. Expanding the SCO is imperative to securing the Central Asian gas pipelines, many of which run through Chinese territory and are threatened by insurgencies that compromise their construction.

The transfer of security responsibility from NATO and the US to the Afghan National Army in 2014 has spurred enormous possibilities and responsibilities for the SCO. Stability in Afghanistan is crucial to China’s primary motive of reaping profits from their investments in the country. Also, insurgencies in the Afghanistan-Pakistan region have spilt over into China’s backyard. The revolutionary zeal of groups based in the region has fuelled the East Turkestan Islamic Movement in China’s Xinjiang Province. Xinjiang Province has been hit by many insurgent attacks this year. The Karachi airport blast in June has brought to forefront the expanding network of extremism in Central Asia.

Popular resentment with irresponsive regimes has been raking the Middle East and West Asia. The members of the SCO are often referred to as the ‘club of authoritarians’. The SCO’s plan to extend membership to India, the largest and one of the soundest democracies in the neighbourhood, aims to undercut these claims while keeping Western efforts to promote democracy at bay.

For its part, India has been making conscious moves towards full membership. In 2012, India initiated the India–Central Asian Dialogue. In 2014, India participated in the meeting of National Coordinators of SCO Member States, where observers were invited for the first time, shortly after the visit of SCO Secretary General Dmitry Fedorovich to India.

SCO membership is pivotal to India’s Connect Central Asia Policy and energy diplomacy goals. The feeble Indian footprint in energy-rich Central Asia may be detrimental to Indian Prime Minister Narendra Modi’s ‘Make in India’ plan. Expanding the SCO membership will also benefit efforts to curtail terrorism, drug trafficking and extremism.

The plan to upgrade SCO observers to full membership parallels China’s ‘One Belt and One Road Initiative’ launched in 2013. The New Silk Road Economic Belt and the 21st Century Maritime Silk Road are designed to heighten the attractiveness of trade with China and strengthen its presence in Asia.

Extending SCO membership to Pakistan will help facilitate China’s plan to revive its role as a regional trade hub. This will also aid China’s Great Western Development Strategy, which was launched in 2000. By developing an intricate oil, gas, railway, road, economic and cultural network with other Asian states, China will place itself at a stronger footing to lead in the Asian century.

The issue of expanding SCO membership has been raised at a time when East–West contestation is at a new post-Cold War high. US–Russia relations have deteriorated considerably over the Ukraine crisis. After sealing the China–Russia gas deal, Russian President Vladimir Putin declared that the unipolar world order is over. Members of the US House of Representatives have also criticised India for giving ‘Russia’s aggression in Crimea implicit approval.’ Chuck Hagel’s visit to India in August and Modi’s visit to the United States, after almost a decade long visa ban, may signal an improvement in East–West relations. But cyber espionage, military reconnaissance and US air strikes in Syria remain key sources of tension between China, Russia and the United States.

SCO members need to take a two-track approach to make it a successful regional grouping. At the macro level, it must forge a common vision and mutual trust with similar groupings such as the Collective Security Treaty Organization. At a micro level, bilateral and regional issues between member states need to be addressed. For instance, tensions between India and Pakistan (who are both being offered full membership at the SCO) over the Kashmir issue needs to be resolved. Similarly, China and India should resolve to settle their border disputes. There are also tensions between China and Turkey, an SCO dialogue partner, over the East Turkestan Islamic Movement. If the SCO is to contribute to a stable and prosperous Asia, it must resolve these bilateral disputes.

Swagata Saha is a Research Assistant at Observer Research Foundation and a team member of China Weekly monitor.

Categories: Forum

A Bank of Japan that can say ‘yes’

East Asia Forum - Thu, 10/16/2014 - 16:00

Author: Paul Sheard, Standard & Poor’s

Under the leadership of Governor Haruhiko Kuroda, the Bank of Japan (BOJ) in March-April 2013 did a 180-degree turnaround: it declared that it had the monetary policy wherewithal to end Japan’s chronic, mild deflation and secure a rate of inflation of around 2 per cent and announced bold monetary action to that end. For BOJ-watchers this was revolutionary stuff — and it was coming from establishment Japan.

Depending on the price index used, Japan’s economy has been in deflation for 15–20 years. Under the previous BOJ governor, Masaaki Shirakawa, the official line was that the bank could not end deflation using monetary policy. The BOJ argued then that the root cause of deflation in Japan was the steady decline in real potential growth, which was driven largely by demographic factors and so was not directly amenable to monetary policy cures. When it came to ending deflation, the BOJ’s position essentially was one of ‘no, we can’t, therefore we won’t’. Instead, the primary responsibility was held to lie with the government.

This was a remarkable position for a central bank to take. While it was correct to argue that monetary policy could not make much of a dent in real variables like potential growth, it flew in the face of standard economic analysis to argue that monetary policy could not control a monetary or nominal phenomenon, namely the path of the aggregate price level.

Moreover, the BOJ’s position was self-defeating. The central idea in modern monetary theory and practice is that the central bank needs to, and is able to, ‘anchor’ the public’s inflation expectations around its inflation target: central banks control inflation to a significant extent by convincing the public that they can and will meet their inflation target. If the starting point is one of deflation, supported by the public expecting deflation to continue in the future, and the central bank itself tells the public that it does not believe it has the tools to end deflation, then that just serves to entrench deflation even further.

In a remarkable turn of events, Prime Minister Shinzo Abe made holding the BOJ accountable for ending deflation the centrepiece of his economic policy program. To do so he used the once-in-five-years opportunity to appoint a new governor and two deputy governors. With Governor Kuroda at the helm, the BOJ has completely changed its tune and its behaviour. When it comes to ending deflation, the message now is ‘yes, we can; yes, we will’.

It is often observed, somewhat stereotypically, that while change can be a long time coming in Japan, when it does occur, it can come very suddenly and dramatically. That begs two questions. First, why, for so long, did the BOJ resist — and why did its political masters allow it to resist — adopting a conventional central bank stance on the deflation issue? And second, why did the Japanese polity suddenly grab the BOJ by the scruff of the neck when it did?

One can only speculate about both questions. The BOJ ’s resistance, having been dealt a bad hand on deflation by the government’s banking and fiscal policy failures of the 1990s, may have been a case of bureaucratic logic and inertia meeting cognitive dissonance. Lacking the boldness and decisiveness to take the kind of policy action necessary, it may have settled for the more expedient course of redefining the problem and the solution, and as an institution started to believe its own alibi.

But that kind of intransigence had consequences — not least in chronic deflation contributing to Japan’s fiscal woes, to dampened ‘animal spirits’ and to a downbeat national psyche. A confluence of factors likely conspired to wake the Japanese polity from sleep-walking into graceful ageing and declining global relevance, and then to produce a coherent policy mix headlined by a resolve to reflate.

Those factors likely were: a post-global financial crisis fall in real GDP twice the magnitude of that in the US; the fiscal wake-up call from the Eurozone sovereign debt crisis; the game-changing nature of the 3/11 disaster, particularly for business investment prospects in Japan; the continuing rise of China, seemingly impervious to the worst global financial and economic shocks since the Great Depression; yet another round of deflationary yen strength; and a growing sense of ‘enough is enough’ when it comes to political musical chairs and mediocre leadership.

While the Kuroda-led BOJ may be saying yes to ending deflation, will it succeed? Despite encouraging early progress, the jury is still out. Economic theory suggests that, once deflation is “soft-wired” into the fabric of an economy (via self-fulfilling expectations and behaviour), it is not easy to expunge.

On the other hand, theory also suggests that there is some set of monetary policies which, if sustained, would succeed in ending deflation. By a reductio ad absurdum argument, the BOJ could surely trigger high inflation if it proceeded to buy up all of the available financial assets in the world — and financed this by ‘printing’ central bank money (reserves). So there must be some less dramatic set of policy actions that would end deflation and produce just the right amount of inflation — it is just a matter of calibrating policy to find out where that point lies.

But, given generally uncooperative fiscal policy, that deflation-expunging tipping point may require surprisingly aggressive policy, far beyond what the BOJ is currently doing, and Mr Kuroda may be hamstrung by other policy board members, some of whom disagree with his assumptions and framework. If so, the BOJ may come up short. That would be unfortunate and not only Japan. After all, Mr Kuroda is attempting to be to deflation (too-low inflation) what US Federal Reserve chairman Paul Volcker was to too-high inflation in the 1980s. If Mr Kuroda’s ‘can do’ approach succeeds, he will be creating a valuable precedent for all future central bankers. Much is at stake.

Paul Sheard is Chief Global Economist and Head of Global Economics and Research at Standard & Poor’s. He is based in New York.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘A Japan that can say ‘yes’‘.

Categories: Forum

Will Vietnam’s FDI-led economy get stuck in a middle income trap?

East Asia Forum - Thu, 10/16/2014 - 03:00

Author: Tran Van Tho, Waseda University

The Vietnamese economy has experienced a downturn in growth since 2008. In the past five years, the growth averaged about 5.5 per cent a year and is not expected to be much higher in the coming years. For a country of per capita income of about US$2000, that rate of growth is low. Increasing the rate of growth to somewhere in the vicinity of 8 per cent a year is imperative if Vietnam is to avoid the so-called middle income trap.

Another feature of the Vietnamese economy is that growth has increasingly been driven by foreign direct investment (FDI). FDI firms in recent years accounted for nearly half of industrial output and more than 65 per cent of exports. The contribution of FDI has been even stronger in various types of machinery, such as telephones, computers, motorbikes and home electric appliances. In addition, due to high income-elastic characteristics, machinery is now the mainstream of industrialisation and trade in the growing East Asian region.

Because of the large flows of FDI, Vietnam has been increasingly intertwined in the machinery supply chains developed by multinational corporations in East Asia. Machinery is becoming increasingly important in Vietnam’s trade structure: it accounted for more than 30 per cent of Vietnam’s exports in 2013, compared to only 10 per cent in 2000. Given the expansion of FDI in this field in recent years, this share can be expected to rise further.

But Vietnam’s current lukewarm rate of growth, driven largely by FDI, may result in structural problems in the long run, where FDI-intense sectors grow quickly and other sectors do not. One reason for this worry is that most FDI firms in Vietnam are wholly foreign-owned. The number of joint ventures between foreign and local firms is quite small. At the end of 2013, approximately 80 per cent of FDI projects were wholly foreign-owned. Vertical linkages between FDI and local firms are also very weak. FDI firms in machinery assembly heavily rely on imports of parts, components and other intermediate goods. They do partially procure intermediate goods in domestic resources but mainly from the supply of other foreign firms rather than local firms. This problem stems from the presence of state-owned enterprises (SOEs).

SOEs do not engage in the production of either manufactured goods for export or intermediate goods for machinery assembly industries. SOEs themselves are not only inefficient but also affect the direction of economic policies and distort the allocation of resources. Therefore local firms in the private sector are also not efficient suppliers of intermediate industry goods since they are placed at a disadvantage in terms of access to capital and land for investment.

So long as SOEs are not comprehensively reformed, the dual structure of the Vietnamese economy will continue.

Since the range of what is considered ‘middle income’ is wide, from US$1000 to about US$10,000 per capita, the problems of the lower middle income countries — those with per capita incomes up to about US$4000 — must be different from the higher middle. High middle income countries, such as Malaysia or Thailand, are reaching the so-called Lewisian turning point, where excess labour in subsistence agriculture can no longer be soaked up by industrial sectors without increasing wages.

In order to avoid the middle income trap, these countries should strengthen their research and development capability, emphasise the quality and appropriateness of human resources, and improve the institutional system for nourishing a dynamic private sector which pushes the structure of comparative advantage toward higher-skill, more innovation-intensive production.

For lower middle income countries like Vietnam, still characterised by a surplus of labour, the efficient allocation of the factors of production is important. Reforms to overcome distortions in factor markets, in order to increase the capital and land productivity, are essential.

Strong FDI performance can help Vietnam maintain a course of moderate growth in the future, but unless substantial institutional reforms are carried out, the economy will continue to underperform in sectors that are not exposed to foreign investment. In the future, when wages begin to rise, foreign investors will stay only if labour productivity increases. And if it doesn’t, the Vietnam could find itself trapped in the ranks of the lower middle-income countries.

Tran Van Tho is Professor of Economics in the School of Social Sciences, Waseda University.

Categories: Forum

Surge of sedition charges in Malaysia arrests Najib’s reform agenda

East Asia Forum - Wed, 10/15/2014 - 16:00

Author: Nigel Cory, CSIS Washington DC

Malaysian opposition leader Anwar Ibrahim was charged with sedition on 24 September for statements he made at a political rally three years earlier. Shortly before, on 19 September, a Malaysian court sentenced a student activist to a year in jail for comments he made after the 2013 general election. These cases are the latest in a surge of sedition charges that is terrorising opposition politicians, social activists, journalists and academics in Malaysia.

The spate of cases represents an attack on free speech and indicates an ongoing trend of political repression since the ruling National Front barely clung to power in the 2013 election. It could also prove to be a setback to the recent improvement in relations between the United States and Malaysia. As cases continue to stack up and domestic opposition starts to build, policymakers in Washington, and other capitals, will be watching to see if the situation warrants high-level attention and potentially public criticism.

A concerted effort appears to be underway within the Malaysian police and judiciary to enforce the country’s colonial-era sedition law. So far in 2014, 14 people have been charged, including 12 since August. Time is no barrier given that some charges have been retrospectively filed for alleged offenses made years ago. Most worrying is the fact that the law has mainly been used against the government’s opponents, including seven opposition politicians (including Anwar’s lawyer), an academic, a social activist and a journalist with , which is often critical of the government.

The Sedition Act of 1948 is a relic of British authorities’ efforts to quell opposition to colonial rule and root out communism. As recent cases demonstrate, its broad definition sets a low bar for its potential use. An offender is someone who ‘does or attempts to do … any act which would, if done, have a seditious tendency’, or ‘utters any seditious words’. A seditious tendency is one meant to ‘excite disaffection against any Ruler or against any government’ or ‘promote feelings of ill will and hostility between different races or classes’.

The timing, number of cases and selective application of the law raises serious concerns as it indicates high-level political coordination and interference. It also runs counter to Prime Minister Najib Razak’s 2012 commitment to repeal the Sedition Act as well as his broader reform agenda. The arrests are more suited to Malaysia’s authoritarian past under former prime minister Mahathir Mohamad. Najib recently said he still intends to repeal the law, but refused to take up the legislative reforms recommended by the National Unity Consultative Council, a body set up to conduct public consultations on reforming the Sedition Act.

Najib seems content to fence-sit for the time being. On 13 September, he said that discussions should continue with those, especially in the majority Malay community, who are concerned about the repeal effort. Najib and his party, the United Malaysia National Organisation (UMNO), are especially sensitive to this sentiment because of its increasing reliance on the Malay vote after Chinese voters almost completely abandoned the ruling coalition in the 2013 election. Najib says that the freedom of all Malaysians ‘should also be in balance with laws that protected long-held principles’. Those principles presumably include the legally privileged status of ethnic Malays. Insecurity about that status appears to be driving the conservative wing of UMNO to stymie efforts to repeal or reform the Sedition Act. If Najib continues to acquiesce to their demands and tactics, it will seriously undermine his reformist credentials.

Malaysia watchers in the United States and elsewhere have reason to be concerned. The use of sedition charges against political opponents risks reversing Malaysia’s progress towards becoming a modern and mature democracy. If the arrests continue it will heighten criticism by human rights groups and policymakers abroad. In the United States, where anxieties are already growing ahead of the final appeal against Anwar’s sodomy conviction in late October, such severe backsliding could put a damper on what should be a burgeoning relationship.

Nigel Cory is a researcher with the Sumitro Chair for Southeast Asia Studies at CSIS. He previously served as an Australian diplomat in Malaysia and the Philippines.

A version of this article first appeared here on cogitASIA.

Categories: Forum

Where are all the women in China’s political system?

East Asia Forum - Wed, 10/15/2014 - 04:00

Author: Jude Howell, LSE

In September 2014 the Inter-Parliamentary Union released its latest figures on the number of women in national parliaments. Rwanda topped the league with women accounting for 63.8 per cent of parliamentarians in the lower house (or its equivalent). China, however, ranked 62nd out of 189 countries, with women accounting for 23.4 per cent of representatives to the National People’s Congress (NPC) — China’s nearest equivalent to a parliament. Given that the Chinese Communist Party (CCP) has long espoused the idea of equality between men and women and has a well-established, dedicated institution for protecting women’s rights and interests — the All-China Women’s Federation (ACWF) — it is curious that the figures are so unimpressive.

These figures reflect a more general pattern of underrepresentation of women at all levels of the political system. Only two women sit in the current 25-member Politburo and no woman has ever sat in the powerful Politburo Standing Committee. Currently there is only one female provincial governor (Li Bin, governor of Anhui) and only one party secretary of a province or city (Sun Chunlan, currently party secretary of Tianjin city, and previously of Fujian province). In fact, Sun is one of only two women who have ever served as the party secretary of a province. Only 21 per cent of all party members are female and only 23 per cent of all national-level civil servants are women. Further down the system, little more than 1 per cent of village committee chairs are women.

How can this be? Especially given the CCP’s apparent long-standing commitment to gender equality, its large organisational machine for promoting women’s rights and interests, its practical efforts to tackle sexist attitudes and promote equality and, not least, Chinese women’s high economic participation — which hovers around 70 per cent for women between 18–64 years. Unravelling this puzzle reveals a complex array of interweaving causal factors, some of which prevail in other countries and some of which are particular to China’s political system and culture.

First and most fundamental are processes of gender socialisation. Despite ideological campaigns during the Maoist decades to change people’s thinking around gender roles, entrenched gendered attitudes remain amongst both men and women. Women are often described as ‘lacking self-confidence’ or ‘lacking quality’ (suzhi di), or seeing their role traditionally as ‘inside the home’ rather than ‘outside the home’. Such views are also often internalised by cadres in the ACWF and mirrored in the numerous campaigns to enhance women’s self-esteem and ‘improve their quality’. But this focus on the individual woman’s ‘quality’ is problematic — not just because it casts the spotlight on the individual woman as the problem and the solution but more importantly because it masks other issues such as institutional and political factors that shape the way men and women enter formal politics.

China’s political culture is male-dominated. Not only is there male bias in the nomination and selection processes for leading positions in the party/state at all levels, but the career trajectories of men and women are often quite different. Both domestic responsibilities as well as a lower retirement age for women hinder the opportunities of promotion for women. Though the NPC in March 2007 stated that women should account for no less than 22 per cent of all NPC members, such targets have turned out to have a limiting effect, creating an artificial barrier to participation after the 22 per cent target has been reached. Surviving in a male-dominated political system also means playing the cultural games that are laid down by men, such as smoking and drinking heavily. Women are thus caught in a dilemma — if they drink along with men, their reputation might be sullied; but if they do not drink along with the men, then it appears that they are not part of the group, and may forfeit influence and connections.

Apart from these political cultural factors, ‘state-derived feminism’ — which is the theory, ideology, strategy and practice of the ACWF — is also limited in what it can achieve. The analysis of female oppression remains stuck in an unrevised Marxist-Engelsian-Maoist analysis that is no longer able to grasp the gendered effects of an increasingly globalised and marketised economy and society. In addition, the ACWF forms part of the CCP’s institutional machine. Constraints on its autonomy translate into constraints on its room to manoeuvre and its ability to take a more challenging approach to gender inequalities. Though more independent women’s groups have proliferated across China since the Fourth World Summit of Women was held in Beijing in 1995, a restrictive regulatory framework for civil society still limits their effectiveness.

But it is not all doom and gloom. At least China has an institutional infrastructure of expanded laws and regulations advancing gender equality and a dedicated national machinery in the form of the ACWF. This cannot be dismissed too lightly. There is also a new wave of activism amongst China’s young generation of women, which is taking radical action around practical issues like the shortage of female toilets and the discriminatory practices in university entrance processes. All is not lost; but more could be done.

Jude Howell is a Professor at the Department of International Development, London School of Economics.

Categories: Forum
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